US Treasuries prices slipped on Monday as traders cut prices amid new supply, but 30-year bonds, which took a drubbing in recent weeks, outperformed shorter-term issues as traders finally found some relative value in the long-dated instrument.
Early in the session, the US Treasury yield curve steepened to record levels as investors, mindful that the Federal Reserve planned few purchases of the Treasury's longest maturity, shunned the 30-year bond. But profit-taking on the curve-steepening trade eventually shrank losses on longer-dated debt prices, slightly narrowing the gap between 10- and 30-year yields.
The $32 billion three-year Treasury note auction drew a good bid, as expected. US companies are expected to sell at least $30 billion in bonds this week, according to IFR, a unit of Thomson Reuters. This wave of corporate issuance led some dealers to pay in interest rate swaps in an effort to lock in the yields on the bonds they underwrite. This led to wider swap spreads, with intermediate spreads growing 0.50 to 2.25 basis points compared with late Friday.
The difference between the yields on benchmark 10-year US Treasury notes and 30-year bonds reached a record wide of 159 basis points before the profit-taking began and traders started buying the longer-dated bonds, which began to look appealing compared with other Treasury securities.
The 30-year bond outperformed other Treasury note prices on Monday for the first time since the Fed's announcement. Five-year notes were down 7/32 in price to yield 1.13 percent, up from 1.09 percent at Friday's close. Benchmark 10-year note prices were down 6/32, the yield rising to 2.56 percent from 2.55 percent late on Friday. Thirty-year bonds rose 4/32, their yield easing to 4.11 percent from 4.12 percent on Friday.